The potato market is still working to get rid of the last old harvest. A cautious start is also being made with the 2020 harvest. But the futures market is now also trading for the 2021 harvest on the April 2022 contract. Why?
Today, 38 contracts were traded at a price level of €13,50 to €13,80. Why so early and why at this price level? The urge to act for the 2021 harvest stems from the market development of the 2020 harvest. The gloomy outlook and price trends are already prompting parties in the market to look for cover for 2021.
After massacre last season
It is clear that there is little hope for the upcoming harvest. The acreage has not shrunk and in general the harvest in Europe seems to be growing normally to good. The consequences of corona and with it the waning sales of pre-fried chips has ensured that the current futures market (TM) for the April 2021 contract has already fallen below € 6,00. The mood and expectations are very negative and after the bloodbath of last season, the coming season does not seem to be a profitable year for the French fries processors.
Most potatoes had already been contracted from growers before the outbreak of corona at 'good' prices. Many of these contracted potatoes have not yet been resold as chips, this normally happens in the period August/September. Due to the situation with corona, a French fries price war seems to be lurking. Processors have overcapacity and stocks in the cold stores and are therefore entering the market for French fries competitively. As a result, part of the contracted potatoes may be sold on to French fries customers at a loss.
Keeping strategy up to the light
This will have consequences for the 2021 season. Factories will not only review their purchasing strategy, but certainly also their contract prices. While contract prices have steadily increased over the past 5 years due to an increase in demand for French fries potatoes and rising French fries prices, this may now be reversed.
Contracting less at lower prices seems to be a realistic strategy. A number of potato growers are already thinking about this and are already choosing to seek cover in the futures market for the 2021 harvest, at prices (€13,60 in April) that are expected to be higher than future contract prices.
Time will tell whether this is wise. After all, it is still a long way off and we do not yet know anything about acreage, growing conditions and sales.